Senate urged to improve proposal on patent reform

The Senate Judiciary Committee was to debate and possibly amend a proposal from U.S. Sen. Patrick Leahy (D-Vt.) regarding patent reform on April 3.

The bill, S. 1720, the Patent Transparency and Improvements Act, is supposed to improve transparency and seeks to remedy problems associated with patent trolls, also known as non-practicing entities.

“Inventors, small businesses, federal judges and the university community have raised sincere and valid concerns that such provisions, if written too broadly, could harm legitimate businesses seeking to enforce their rights,” Leahy said in a statement earlier this year about patent reform. “At the same time, properly tailored measures will provide a valuable tool in deterring abusive conduct.”

In recent months, several criticisms were voiced about the proposed Senate legislation. Meanwhile, the House of Representatives already approved the related Innovation Act.

“Patent quality—the underlying reason why trolls are able to target companies and individuals with dubious claims—is very unfortunately missing from the discussion,” according to the Electronic Frontier Foundation.

“The Innovation Act offered … heightened pleading, fee shifting, transparency, ending discovery abuse, and end-user protections,” according to the EFF. “The first draft of the Patent Transparency and Improvements Act only covers transparency and end-user protections, though it adds important standards for patent demand letters, which are highly abused.”

The foundation wants more done to curb the prevalence of “overbroad and vague software patents.” U.S. Sen. Charles Schumer (D, NY) addressed the issue in a recent proposal. That broadened Covered Business Method (CBM) review to “all business method patents, including software-type patents,” the EFF said. “This could provide a cheaper and quicker way to deal with bad patents that have already been issued.”

The EFF wants to see a limiting of patent continuations (“do-overs of patent applications”), less “overbroad functional claims,” and improved review.

In addition, the legislation should include more provisions for a losing party in a lawsuit, often the troll, to pay attorneys’ fees incurred by the other side, the EFF said. It adds there should also be stronger protections for an end user. And there should be more details in complaints about alleged infringement in patents and claims.

As of now, when it comes to transparency both the House and Senate bills require that trolls and other patent owners need to tell the U.S. Patent and Trademark Office (USPTO) and a court about “changes in ownership or any entities with financial interests in the asserted patents,” the EFF said.

In addition, the House bill addressed the issue of financial burdens that are often found in discovery – which can be abused by patent trolls. The Senate bill should do, likewise, the EFF said.

One area the EFF praised in the Senate bill is that it addresses the current practice of sending “unreasonable” demand letters, and lets the Federal Trade Commission “crack down on such bad actors.” Demand letters are sent by patent owners to individuals and companies, which claim there is infringement taking place.

On the other hand, from his perspective, Charles Sauer, a founder of Entrepreneurs for Growth, said the Senate bill appears to too broadly address the issue of patent trolls.

“Legitimate patent holders such as universities (who hold many patents but never intend to manufacture their inventions) and small ‘garage’ inventors will be lumped into the broad provisions of this bill and could be targeted as trolls,” he explained in a recent op-ed in The Washington Times. “Given innovation is a key ingredient to jobs and economic growth, these drivers of economic abundance could easily become victims of the Innovation Act if it passes the Senate in its current form.”

He cites a report from the Heritage Foundation which questioned if there really are numerous frivolous patent lawsuits.

In the Heritage Foundation report, written by John Malcolm and Andrew Kloster, it was argued that patents need to be “strongly protected” given how they encourage innovation and protect property.

“Patents are treated similarly to any other piece of property: They can be bought and sold on the open market, and what a patent holder does with a patent is his business. Just as a homeowner might decide to purchase a piece of land and not develop it or permit others to use it, a patent holder may also choose to do nothing with the patented invention. Alternatively, the patent holder might authorize someone else to utilize his patented invention (which could be a product or business process); license it to others for their use; or hold on to the patent as an investment until he decides to sell it (or it expires). … Patent rights — the exclusive ability to sell an invention for a period of years — provide powerful financial incentives to companies to research and develop technologies that benefit society,” the report said.

And when it comes to the issue of patent trolls, the Heritage report recommends that “Rapacious trial lawyers should be discouraged so that business can innovate without undue fear of court costs.”

Also, “Judges should be empowered and encouraged to employ sanctions and bond requirements to deter abusive litigants of all types, not based on whether they are plaintiffs or defendants or whether they are patent assertion entities or ‘active users’ of a patent,” the Heritage report recommends.

In an earlier statement, Leahy contends his version of bill, as introduced last year, would increase transparency when it comes to patent ownership, allows a patent case against customers be stayed while the manufacturer litigates the suit, targets the sending of frivolous demand letters, and improves resources for small businesses that are targeted in patent infringement suits.

It is also noteworthy that the Leahy proposal broadens the definition of intellectual property. This comes as it relates to bankruptcy code, and includes trademarks, service marks or trade names, according to the Congressional Research Service.

The White House, meanwhile, would like to see patent reform enacted. In January, during the State of the Union address, President Barack Obama urged Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.”

However, if recent data suggests a change in the legal landscape, Lex Machina reported a “significant decline” in the number of patent lawsuits. In January 2013, there were 490 new patent complaints filed, while the number of patent cases filed in January 2014 was 322, according to InsideCounsel.